Understanding the GFPP

LICENSING, INSPECTION AND FINANCIAL SECURITY

imagine storing your grain at an elevator and your crop disappears before you go to sell it. Or imagine selling your grain to a dealer and not getting paid.

Thirty years ago, there was no protection against these scenarios for Ontario farmers. The creation of the Grain Financial Protection Program (GFPP) in 1985 standardized the industry and provided financial security for producers. But how the program works, and how it is funded, is still not fully understood by many.

The GFPP has both a licensing and inspection component and a financial protection component. Licensing and inspection of dealers and elevators is handled by Agricorp, while the Grain Financial Protection Board (GFPB) assesses claims and manages the funds to ensure financial compensation is available when needed.

licensing and inspection In Ontario, you need to have a dealer license to buy corn, soybean, wheat, and canola; and all elevators must be licensed. Larger companies, such as P&H or Cargill, are only required to hold one dealer license, but each elevator they own, or are affiliated with, is licensed individually. As the Chief Grains Inspector with Agricorp, it is Jim Zavitz’s role to make sure everyone complies with the Grain Financial Protection Program and he responds to any complaints made by producers.

“A license really reflects that a third party has gone in there and determined that this operation is financially responsible and that they are meeting all the obligations that they need to – kind of like a seal of approval,” Zavitz explains. “It creates the opportunity for producers to store their grain with confidence, allowing them to market their crop to their advantage.”

Dealer and elevator licenses are reviewed every year. This includes an analysis of financial statements and purchases, ensuring proper inventories are being maintained and that producers are being paid on time.

“If something changes during the year, we may also have to re-evaluate their license,” says Zavitz. “If they don’t have the financial strength, we can hold security or limit the amount of grain purchases they can make. We have to make sure they have the financial strength to pay producers for their crop.”

Between April 1, 2012 and March 31, 2013, Zavitz and his team investigated 13 complaints initiated by producers. They also conducted 203 inspections which led to 89 directives for corrective actions that needed to be taken by an elevator or dealer. Zavitz says that, typically, most issues are minor and relate to sending grain storage receipts, making payments, or submitting check-off fees according to the specified timelines set out by the Program. However, Zavitz notes that a minor complaint can be the tip of the iceberg. “If people aren’t getting paid it could be a sign that something is wrong with that dealer or elevator and we would like to act as quickly as possible to minimize that exposure for producers.”

That is why it is important to report any issues you have to Agricorp. Of the 13 complaints that were investigated within the past year, a quarter of them resulted in an order being issued under the Grains Act and the elevator or dealer was shut down. The most common infringement is operating without a license.

Zavitz recalls one serious case from a few years ago where an un-licensed dealer did not have enough inventory of grain to match his commitments to producers. “Producers had stored their grain with this guy and he had gone ahead and sold more than he should have. We shut down the operation, seized the grain, held a meeting with the producers and said here’s what we are going to do - we are going to seize what is here, sell it off, and we will pro-rate the proceeds amongst you.”

However, even after that process, there still was not enough grain to fully compensate the affected producers. At that point, the Grain Financial Protection Board (GFPB) became involved and adjudicated individual claims.

reviewing claims The Board manages four separate funds – one for each commodity (corn, soybeans, wheat, and canola). It is their job to make sure financial compensation is available to producers when it is needed and that the funds are sustained appropriately.

The funds receive revenue from two sources. The first is a portion of the check-off fee all producers pay at the time of a sale. The second is interest earned on the balance of the funds being held. An annual review is conducted to make sure producers are not paying too much or too little. That is what led to changes that went into effect on July 1 which lowered the fees payable by wheat producers but increased the fees payable by soybean producers.

“The Board compared the performance of the four funds to the recommendations made in an actuarial study. And that revealed the wheat fund was at a point of being over its target balance,” explains Barry Senft, CEO of Grain Farmers of Ontario and a GFPB Member. “The wheat fund was established later than the others, in 2000, and had a higher fee to start off. However, it has now reached an appropriate level where the needs of the fund can be met with lower fees.”

On the other hand, the soybean fund was not achieving its objective of growing by at least two percent per year. A total of $2.8 million has been paid out in claims through the GFPB since 1985, and all of these claims have been made against either the corn or soybean funds.

When a dealer is unable to pay, usually more than one producer is affected and the Board will review several claims from the same event. The most recent event in 2008 involved $730,000 in claims paid out to 18 producers.

“It’s important that producers have the proper documentation relating to their grain transactions. Don’t be complacent about saving your weigh receipts and grain storage receipts,” recommends Senft. “If there is a problem, the proper paperwork is essential for proving your case and it helps us ensure you are compensated fairly for your losses.”

Large claims are now rare compared to when the Program was first established. However, it still plays an important role in the grain industry – particularly with ensuring that payments are made on schedule.

In July 2012, the regulations under the Grains Act were amended to reflect the industry practice of dealer deferred payments to producers. Grain Farmers of Ontario and the Ontario Agri Business Association worked together to lobby government to get this change made to reflect the needs of the grain industry. All deferred payments under 180 days are eligible for declining coverage under the provisions of the GFPP.

“We are seeing producers that are doing a lot more forward contracting and those that are taking advantage of the deferred payment option, so there still is a need to have that crop secure,” notes Zavitz. “And based on the feedback I get from the industry, they feel it is necessary and they feel it is beneficial.”

Senft agrees. “In a market with significant swings you never know when an elevator or a dealer will be on the wrong side and that’s what makes the Grain Financial Protection Program such an important program. You don’t ever want to need it, but you’ll be glad it is there if you do.”

Next month: We provide more details on the option of deferred payments, including a full payment schedule.

Commodity

Total Check-off fee* *(includes GFPB portion)

GFPB Portion

Corn

$ 0.41/mT

$ 0.001/mT

Soybeans

$ 1.33/mT

$ 0.10/mT

Wheat

$ 0.79/mT

$ 0.05/mT

GRAIN DEALER/ELEVATOR OPERATOR RESPONSIBILITIES

Grain dealer responsibilities:

Hold and post a valid grain dealer license in your establishment.

Deduct your check-off fees and remit them to the appropriate commodity organizations each month.

Make payments to producers within the required timelines:

For sales upon delivery: Issue payment within 10 trading days or by the date specified in a deferred payment arrangement.

For sales out of storage: Issue payment by 2 p.m. on the fifth trading day after the sale or by the date specified in a deferred payment arrangement.

For basis contracts: Issue a minimum of 60 percent of the market price within required timelines, as per payment arrangement (e.g., deferred, upon delivery or out of storage).

For deferred payment arrangements: Provide producer or owner with written confirmation of any deferred payment arrangements within five trading days of the arrangement date.

Issue a weigh ticket for each load of grain when you deliver the crop.

Issue grain storage receipts within 45 trading days of first delivery, or within five trading days of request. Receipts must be signed by an authorized representative and indicate expiry date, charges and any other agreements you have entered into.

Release the grain to owner upon request.

For more information contact Agricorp at 1-888-247-4999, or visit their website: www.agricorp.com.

RESPONSIBILITY OF THE PRODUCER

Selling Crops:

Sell crops only to licensed dealers.

Cash your cheques within five banking days of the date the cheque is made payable.

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